Inside Asian Gaming

June 2010 | INSIDE ASIAN GAMING 63 Briefs jail. He also agreed to a confiscation order on nearly HK$85 million of personal assets. MPEL note issue to reduce City of Dreams debt Melco Crown Entertainment Limited (Nasdaq:MPEL) is offering investors US$600 million worth of senior notes due in 2018 in an exercise it says will reduce its debt burden on its City of Dreams project on Cotai in Macau. Although MPEL is listed on New York’s Nasdaq, the notes have been given approval in principle for listing on Singapore’s SGX. The yield on the notes is 10.25%, which is 6.67% above yields quoted for US Treasury 10-year notes last month. “The company intends to use the net proceeds from the offering to reduce the indebtedness under the company’s City of Dreams project facility,”MPEL said in a statement accompanying the announcement. The announcement appears to indicate that MPEL has previously paid a significant premiumon portions of its CoD debt relative to its competitors in the industry. City of Dreams—along with its rival property The Venetian Macao built by Las Vegas Sands Corp across the road—experienced significant cost overruns attributed at the time to commodity and wage inflation in the overheating Chinese economy. CoD had a final budgeted cost in June 2009 of more than US$2.4 billion—12.5% above the US$2.1 billion estimated cost MPEL gave in a filing to the US Securities and Exchange Commission in October 2007. The final bill was 37.5% above the original estimate of US$1.5 billion MPEL submitted in an SEC filing in 2006. CoD had been scheduled to open in mid-June 2009, but the date was brought forward by two weeks to 1st June at the insistence of lenders. The imposition of this covenant may have related to investor concerns about MPEL’s previously patchy project management in Macau. Altira Macau (then known as Crown Macau), the joint venture’s VIP-focused property in the mainly residential Taipa district of Macau, had a shaky start in May 2007 when it opened seven months late and massively over budget (with a final US$583 million price tag versus an originally budgeted cost of US$192 million). Rumours have persisted for months that one of the MPEL joint venture partners—James Packer of Australia’s Crown Ltd—would like to exit the Macau market, though this has been firmly denied by MPEL’s co-chairman Lawrence Ho. Macau gaming tax—no cuts planned The idea that getting the Macau government to rebate or reduce the 39% tax levied on the gaming gross in Macau would enhance the jurisdiction’s ‘competitiveness’ is probably a red herring. But that hasn’t stopped someone from raising the issue again. The suggestion was first made last year by Dr Stanley Ho and then echoed by other operators in the run up to the launch this year of Singapore’s integrated gaming resorts. A reduction in the Macau operators’ tax burden would certainly have the potential to boost casino margins—especially in the high volume, lowmargin VIP baccarat segment, which accounted last year for more than 70% of Macau’s entire gross gaming revenue (GGR). But it is unlikely to have any discernible effect on Macau’s international competitiveness as a gaming destination, given that Singapore, with its 15% mass market gambling tax and 5% VIP gambling tax plus 7% Goods and Services Tax, has effectively ruled out the kind of VIP player supply route used in the Macau market. That junket system uses (theoretically) independent agents to bring in Macau’s high rollers to most of the casinos, with another layer of middlemen to supply credit for gambling and another to collect on debts in the key feeder markets of mainland China (where gambling debts are not recognised by the courts) and Hong Kong. Junkets supplying ethnic Chinese players to secondary, low gaming tax markets in Asia, such as the Philippines, are currently a marginal part of regional business. The Philippines levies 15% tax on GGR for slot machines and for non-junket mass-market tables (known locally as ‘The Grind’). It takes 10% of GGR for VIP tables and VIP and non-VIP junkets. There is an additional 2% levy on non-junket mass market andVIP table GGR for what’s described by the Philippine Amusement and Gaming Corporation (Pagcor), the country’s gaming operator-cum-regulator, as restoration of ‘cultural heritage’. The problem in the Philippines is not the tax burden, nor even necessarily the quality of facilities, which have been improving steadily with the opening of new facilities such as Resorts World Manila, the Malaysian gaming company Genting’s joint venture with Alliance Global Group, the conglomerate headed by Philippines entrepreneur Andrew Tan. The difficulty is rather the attitude of the authorities in mainland China, who have been reluctant to issue exit visas for Chinese high rollers to splash cash with junkets outside the country. It seems China’s central government would rather keep the Chinese junket business ‘inside the family’ in Macau. Luis Pessanha, legal adviser of the Legislative Assembly, told the Macau Daily Times : “Figures suggest that the market is healthy and that gaming operators can live well with a high tax burden. We have to wait and see if in the medium term Singapore will have an impact on our market or not.” City of Dreams